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$427 billion deficit projected for 2005
The New York Times
Bush Aides Say Budget Deficit Will Rise Again
Published: January 26, 2005

WASHINGTON, Jan. 25 - The White House announced on Tuesday that the federal budget deficit was expected to rise this year to $427 billion, a figure that includes a new request from President Bush to help pay for the war in Iraq.

The White House's announcement makes it the fourth straight year in which the budget deficit was expected to grow; as recently as last July the administration had predicted that the deficit, which was $412 billion last year, would fall this year to $331 billion.

The deficit figure announced by the White House, which includes part of an additional $80 billion that Mr. Bush requested mostly for Iraq, was higher than the $368 billion estimate announced earlier in the day by the nonpartisan Congressional Budget Office, though that figure did not include supplemental costs for the war. The deficit estimates are roughly consistent with each other with the inclusion of those costs, which cover bombs, bullets, armor for vehicles used in Iraq, and the replacement of tanks and Humvees blown up by insurgent forces.

Neither estimate includes the cost of privatizing part of the Social Security program, the leading element of Mr. Bush's domestic agenda. Estimates of the cost of creating those accounts range from $1 trillion to $2 trillion over the next two decades.

The Congressional Budget Office noted that if Mr. Bush wins Congressional approval to make his tax cuts permanent, a top priority for the administration, the deficit would grow by $2 trillion over the next 10 years. If war costs in Iraq and Afghanistan taper off gradually, the agency estimated that price tag over the next 10 years could total nearly $600 billion.

In a briefing for reporters on Tuesday, senior administration officials insisted they were still on track to fulfill Mr. Bush's campaign promise of reducing the federal budget deficit by half by 2009. But Mr. Bush is already well behind in reaching his goal. The deficit this year will amount to about 3.5 percent of the nation's gross domestic product, the broadest measure of the economy, a figure that is still below where the United States was in the late 1980's.

Beyond the war costs, administration officials did not spell out the precise reasons for the deficit increase. Tax receipts are expected to climb by about $200 billion in 2005, but mandatory spending for entitlement programs like Medicare and Medicaid is expected to rise significantly faster than the rate of inflation.

Mr. Bush defended his $80 billion request for Iraq in a written statement on Tuesday - he had no public events where he could be questioned about it by reporters - saying "our troops will have whatever they need to protect themselves and complete their mission."

But on Capitol Hill, Democrats made clear that while the $80 billion was likely to be approved, they would use the debate on it to question Mr. Bush's war strategy, just as they have done with the confirmation hearings for Condoleezza Rice, the nominee for secretary of state.

The White House made no estimate of the cost of the war beyond the next year, being careful not to tip its hand about how long Mr. Bush expects American troops to remain. But on Monday, Lt. Gen. James J. Lovelace, the director of Army operations, said that the Army was operating on the assumption that the number of American troops in Iraq would remain above 100,000 through 2006.

One military expert who has been briefed by the Pentagon said on Tuesday that part of the $80 billion would be used to establish more permanent military bases in Iraq, assuming the new Iraqi government permits a long-term American military presence. The Congressional agency estimated that the war in Iraq and other military operations against terrorism could cost $285 billion over the next 5 years.

Democrats quickly seized on the administration's announcement and the new Congressional deficit report, accusing Mr. Bush of making a bad fiscal situation worse by pushing for permanent tax cuts at a time of war.

"The administration remains in denial about these fiscal results," said Representative John M. Spratt Jr., Democrat of South Carolina and the ranking Democrat on the House Budget Committee.

In contrast to the White House budget forecasts, which extend only 5 years, the Congressional projections look ahead 10 years and include many of Mr. Bush's most costly initiatives. For example, extending his tax cuts adds little to the deficits over 5 years but would add $1.8 trillion over 10 years. Preventing an expansion of the Alternative Minimum Tax, a parallel tax that was designed to prevent wealthy people from taking advantage of loopholes, would cost about $500 billion.

Administration officials dispute the notion that creating private Social Security accounts would be as expensive as it first appears. They argue that the government would eventually save at least as much money as it spends by lowering the cost of future benefits to retirees. The government, however, might have to borrow as much as $100 billion a year over the next 20 years to pay full benefits to existing retirees, as even the administration has begun to acknowledge.

Even without any changes to current law, the Congressional agency predicted that annual interest costs on the federal debt would almost double from $160 billion last year to $314 billion in 2012. That would be about six times what the federal government spent last year on education.

White House officials provided few details about how they want to use the $80 billion in supplemental war costs that Mr. Bush plans to request.

A senior administration official said on Tuesday that about $75 billion would go for military operations in Iraq and Afghanistan, and would come on top of $25 billion that Congress already appropriated for the first few months of this fiscal year, which began on Oct. 1.

Much of the request, which is a big jump from last year, is to cover rapidly rising costs of repairing and replacing equipment. Many soldiers and their families have complained about a shortage of properly armored vehicles. But Pentagon officials have been struggling even more with the wear and tear on tanks and weapons that are being used constantly in grueling conditions.

One official said on Tuesday that Bradley fighting vehicles were being driven about 4,000 miles a year in Iraq, six times their normal mileage.

The administration also intends to spend about $1 billion on technology and equipment to fend off "improvised explosive devices," the roadside bombs that have killed hundreds of American soldiers and many more Iraqis over the last year.

About $5 billion of the $80 billion would be used on programs like financial aid to Palestinians as they try to build a democratic government and a heavily fortified embassy in Iraq for the State Department.

Administration officials predicted they would spend about $35 billion of the emergency request this year, and the balance in 2006 and later.

The biggest fiscal problem confronting Mr. Bush is that more than 80 percent of the $2.3 trillion federal budget is currently off-limits for cutting. More than two-thirds of the annual budget goes to mandatory entitlement programs, mainly Social Security, Medicaid and Medicare.

More than $500 billion will go to the military and domestic security, not counting the extra money being spent in Iraq and Afghanistan. Administration officials want to increase financing for the military and domestic security above the rate of inflation for the foreseeable future.

That leaves less than $500 billion for all the other discretionary domestic programs, like space exploration, education and tax collection. Administration officials hope to freeze that spending at current levels, which would lead to real cuts after adjusting for inflation. But that, according to the Congressional Budget Office, would save only about $9 billion a year.

David E. Sanger and Eric Schmitt contributed reporting for this article.